EFFECT OF CAPITAL MARKET ON THE ECONOMIC GROWTH OF NIGERIA AND SOUTH AFRICA (1981 - 2015)
Faculty: Management Sciences
Department: Banking And Finance
Osakwe, C. I.
Okonkwo, V. I.
The study is a comparative study of the effect of capital market on economic growth in Nigeria and South Africafor the period 1981 to 2015. The specific objectives of the study are to ascertain the effect of stock market capitalization ratio to gross domestic product(GDP) on economic growth in Nigeria and South Africa economies, to evaluate the effect of stock value traded ratio to gross domestic product on economic growth in the Nigeria and South Africa economies and to examine the effect of turnover ratio of the two countries stock markets on their economic growths.Data were generated from World Bank Report on Development indicators 2015. Econometric tools involving Granger Causality data analysis was used. The Ramsey reset specification test was usedto ascertain if non-linear combinations of the independent variables have any power in explaining the dependent variable in the study at 5% significance level. There are mixed results as to the effects of stock markets on economic growth of the nations. The study found thatthe relationship between market capitalization ratio to GDP and economic growth is positive but insignificant for Nigeria while for South Africa, it is positive and significant, the stock value traded ratio and turnover ratio are positively but insignificantly related to the economic growth of Nigeria and South Africa.Thus,the economic growth is positively correlated with the size and liquidity position of both countries capital markets, thoughthe size and the liquidity position of South Africa capital market have better contribution to economic growth compared to Nigeria.The study recommends that there is a need to increase the size of the marketsby increasing the number of financial instruments available to investors so as to increase trading as well as improve liquidity in the markets.
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